ECRRS - European Center for Risk & Resilience Studies

Unveiling the Economics of Property Loss Prevention

  • Unveiling the Economics of Property Loss Prevention

  • Danish municipalities, serving as responsible building owners, allocate significant annual investments, totaling billions of Danish kroner, to mitigate the risk of building damage. These investments are essential not only to reduce the direct financial losses from building damage but also to consider their broader impact on insurance pricing and contracts. Our research centers on the crucial question: Can these investments yield a positive net benefit, considering the intricate dynamics between insurers and policyholders?

    Building owners find themselves in a challenging position, where they must make critical decisions on resource allocation to minimize the risk of building damage. These choices may involve transferring some or all of this risk to a third party or adopting a combination of strategies. The overarching goal is to enhance their overall net benefit by reducing damage-related expenses and insurance costs. However, current research provides limited insights into how property loss prevention technologies affect building damage and their potential influence on property insurance pricing within the context of risk transfer.

    To address this overarching question, our research aims to quantify the impact of property loss prevention technologies on mitigating building damages. Additionally, we investigate how investments in property loss prevention technologies may influence property insurance pricing. Ultimately, our thesis delves into the strategic decision-making process for property owners as they prioritize investments in loss prevention alongside ex-ante risk transfer strategies.

    Risk managers face a fascinating challenge when selecting between investments in property loss prevention technologies, risk transfer, or bearing the burden of their own risk. To provide a deeper understanding of how property owners, including potential policyholders, should approach the prioritization of loss prevention investments, we address three key questions in this project:

    • What is Loss Prevention Technologies' Effect on Property Damage Cost and Financial Savings?
    • Do insurers adjust prices for the adoption of loss prevention technologies?

  • The achievements of our project can be directly attributed to the exceptional support from our partners, particularly WTW (Willis Towers Watson), and the financial contributions from the Region of Southern Denmark and the following municipalities: Faxe Kommune, Frederikshavn Kommune, Hedensted Kommune, Hjørring Kommune, Horsens Kommune, Københavns Kommune, Mariagerfjord Kommune, Middelfart Kommune, Nordfyns Kommune, Randers Kommune, Ringkøbing‐Skjern Kommune, Skanderborg Kommune, Stevns Kommune, Struer Kommune. Additionally, the support from the insurance companies Protector Forsikring and RiskPoint played a pivotal role. Without their steadfast commitment and collaborative efforts, the project would not have achieved its current level of success.

    Simon Sølvsten

    Director of European Center for Risk & Resilience Studies

Testing publication 2

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